We cannot do without nature; we are part of it – How Nature-related Disclosures (NRD) can enhance sustainability

Mathieu Hemery
May 2024
Sustainability
A vibrant rainbow over a natural landscape reflecting harmony between nature and business – Nature-related Disclosures (NRD)

Today, climate change mitigation efforts are mostly focused on reducing the carbon footprint, to keep stable enough and predictable enough patterns of temperature and humidity necessary for people, crops, and cattle. However fresh water, biodiversity, pollinators count, and forest density are equally important for a sustainable future – for us and animals.

As a practical example, with the intense development of solar panels and batteries, mining lithium could be seen as a key enabler for unlocking the benefits of a transition away from fossil fuel generating energy or for transport; but at the same time comes at a significant local biodiversity loss.  

So, while many large entities are focused on developing their climate-related disclosures (CRD), consideration should be given to how quickly these entities follow up by adopting NRD to support having a complete picture of the impacts of organisations on our environment.

To this effect, in September 2023, the Taskforce for Nature-related Financial Disclosures (TNFD) published their recommendations, which were followed by several guidance documents supporting adoption. 

Here, we describe key nature-related terms and briefly comment on these recommendations in light of those of the Taskforce for Climate-related Financial Disclosures (TCFD) – which were a starting point for CRD standards in New Zealand and abroad.

What is nature in the context of nature-related risk management and their disclosures.

Nature is the interactions between living organisms (including people – considered as part of nature) and their environment. To describe completely natural environments, four realms (atmosphere, freshwater, land and ocean) are defined as major components, each with specific features and mechanisms.

Those realms are used as an entry point to analyse the impact on and dependence from society on nature; they are further refined by the local surroundings as biomes. 

With the intent to measure nature resources and impacts, several terms were developed for nature: 

  • environmental assets can be grouped together as natural capital
  • ecosystems are dynamic systems, with living organisms and their environment interacting together. Ecosystems produce a flow of benefits to society – named ecosystem services, which are grouped in three categories:
    • provisioning services,
    • regulating and maintenance services,
    • and cultural services.

Ecosystems which share common features (driven by humidity, topography and temperature patterns) are referred to as biomes – the TNFD has issued guidance on biomes and their associated ecosystem services, including practical examples of how the impacts on and dependences from an ecosystem would be considered for a range of businesses.

Similarities with TCFD

The TCFD proposed 11 recommendations, spread across 4 pillars: governance, strategy, risk management and metrics and targets. The pillars are often represented as onion layers overlapping, covering a full view of the subject matter, which also covers how climate risk is integrated within the wider company strategy and risk management. The TCFD has brought to the front of the scene forward-looking practices such as scenario analysis and very long-term time horizons; while some visionary companies have used the insights of scenario analysis, the discipline is by no way widespread and has been the subject of detailed guidance.

TNFD uses a similar approach, with the same pillars, covering 14 recommendations.

It is interesting to note that the most (10) of 11 recommendations from TCFD are well aligned:

  • oversight from the board on nature-related risk and its impacts and opportunities,
  • as well as the role of management in identifying and assessing nature-related risks;
  • the risks and opportunities over short-, medium- and long-term horizons,
  • the impacts from nature-related risk on the organisation’s businesses and strategy,
  • the overall resilience of the organisation strategy to be assessed using scenarios;
  • risk identification, assessment and prioritisation processes for nature-related risks,
  • management of nature-related risks and corresponding impacts and opportunities,
  • integration of the nature risk management process in the overall risk management;
  • metrics used to assess nature-related risks,
  • as well as the targets and progress towards these.

If your organisation has gone through the CRD preparation process, those concepts would be familiar to you, which would ease the onboarding of the NRD requirements. 

Specific Characteristics of nature-related disclosures

But nature-related disclosures go beyond what was described above by aiming to bring transparency on the following topics:

  • As part of Governance, to describe the organisation’s human rights policies and engagement activities, and oversight by the governing body or management with respect to Indigenous Peoples and Local Communities in the organisation’s assessment and response to nature-related risk.
    It is interesting to note that for example The PRI (Principles for Responsible Investment – see 2024 Reporting Framework: Overview and structure guide encourages the reporting of human rights and active engagement as part of governance. This tends to show that after the initial recommendations, literature recommends a holistic approach around the governance of sustainability topics; 
  • An addition in the Strategy pillar, locations of assets and/or activities direct operations, extended to the value chain will need to be disclosed.
    While this is a new recommendation compared to TCFD, it is likely that organisations which have done a risk assessment based on the locations of their assets will already have disclosed this information in part. 
  • In Risk Management, the process for identification, assessment and prioritisation of relevant risks has to be extended to the value chain (upstream and downstream).
    In the NZ CS requirements, value chain is explicitly considered as exceptions to what is in scope for risk management. The formulation here is to describe the processes for the value chain, recognising that these processes may differ from the risk management applied to the direct operations of the organisation.
  • Climate is a complex problem – it is described often though through the lens of a single metric, the mass of CO2 equivalent, and qualified by its scope and sub-category for scope 3. More metrics (such as Climate Value at Risk) exist, but are not used for all sectors.
    Nature-related risk does not have a similar unifying metric (not yet anyway), which will potentially mean that comparing impact on and from nature on organisations will be harder. TNFD though has an extensive list of disclosure indicators and metrics related to nature.

Data needs to come with its insights, and comparability is essential for nature disclosures to be a meaningful tool used for customers and investors. It may be good to have a summary score.

The task may seem daunting. In the span of several years, environmental reporting requirements have been defined and developed to address non-financial risks faced by organisations and integrate them in their risk management practice. In turn, the disclosure requirements aim to act as a vector of genuine change to transform the way organisations operate to a more sustainable balance. New types of risks have emerged where the transparency is found lacking in intent (greenwashing) or in execution (greenwishing). 

Nature-related disclosures are not mandatory yet; but they need to be discussed, and corresponding work programmes to tackle them should be lined up in strategic planning, as they would be the next logical step after the CRD regime settles (after the initial adoption provisions). And when the time is right, the Mosaic team of experts is here to help you navigate your sustainability journey including climate and nature risks.